Lisa P Skeen on sat 3 jan 98
Dear Bonnie and whomever else might be able to answer this question:
Can I claim the percentage paid to the gallery/consignment/shop as loss
of income or cost of sales? Can I claim the difference between wholesale
and retail ?
Example: I sell pots/soaps/etc. on consignment and they retail for $10.
I have to give the shop owner 30% *usually*, which means I only get $7 of
the $10. Can I take the $3 as a loss or as any type of business
deduction, or is that being too "craft"y (pardon the pun)?
Lisa Skeen, Living Tree Pottery and Soaps
http://www.uncg.edu/~lpskeen
Dobeaglkuv on sun 4 jan 98
In a message dated 98-01-03 11:29:05 EST, you write:
<< Can I claim the percentage paid to the gallery/consignment/shop as loss
of income or cost of sales? Can I claim the difference between wholesale
and retail ?
>>
sounds like a good idea, HOWEVER, I think if your percentage was $50 and you
claimed that as an expense, you would also have had to claim $50 more than you
got as income, so it is a wash
Jeremy M. Hellman on sun 4 jan 98
Hello Lisa-
In general you are only able to deduct expenses which you have paid or
incurred, so if I sell an object (pot, soap, widget or whatever) and
receive $10 in return I include the $10 in income. If I have to pay
someone else $3 in charges (whether commission, fee, or other selling
expense) I can deduct that $3.
In other words, both will appear on my tax return (as part of hopefully
larger numbers). The $10 is sales revenue, and the $3 is a commission or
some other cost.
If the shop owner receives the $10, keeps $3 and gives me $7, I may only
include $7 in income on my tax return. However I'm at the same place as
before- my net income is $7, which is the amount of money I received.
If I only include $7 in income on my tax return and then claim $3 of
expenses, my net is $4 and I am understating my income by the $3. Not
allowed.
What you need to remember is that since you undoubtedly have inventory,
your business tax return will be on an accrual basis. This means that you
will include in income, all money that you have earned (regardless of
whether you received the cash) and you can deduct all expenses incurred,
regardless of whether you actually paid for those expenses. However, a
consignment sale is not sold inventory. You still own the pieces out on
consignment.
At year end you will need to know what revenue you need to recognize
(your receivables or accounts receivable) and accrued expenses (bills for
business expenses incurred in the previous year).
Bonnie
>----------------------------Original message----------------------------
>Dear Bonnie and whomever else might be able to answer this question:
>
>Can I claim the percentage paid to the gallery/consignment/shop as loss
>of income or cost of sales? Can I claim the difference between wholesale
>and retail ?
>
>Example: I sell pots/soaps/etc. on consignment and they retail for $10.
>I have to give the shop owner 30% *usually*, which means I only get $7 of
>the $10. Can I take the $3 as a loss or as any type of business
>deduction, or is that being too "craft"y (pardon the pun)?
>
>Lisa Skeen, Living Tree Pottery and Soaps
>http://www.uncg.edu/~lpskeen
"Outside a dog, a book is a man's best friend. Inside a dog, it's too
dark to read" Groucho Marx
" " Harpo Marx
"Time flies like an arrow. Fruit flies like a banana" Att. to GM
Elizabeth A. Ringus on sun 4 jan 98
Yes, Lisa, you can claim the difference as a commission paid out to that
gallery in the case of consignment. This would be no different than paying a
"booth fee" at a show.
I assume that you are filing an itemized long form - C - business form on
your taxes.
Consult your tax preparer. The only thing un-happy about Happy New Year is
inventory and filing taxes!
Liz :-0 at paw print pottery
Lisa P Skeen wrote:
> ----------------------------Original message----------------------------
> Dear Bonnie and whomever else might be able to answer this question:
>
> Can I claim the percentage paid to the gallery/consignment/shop as loss
> of income or cost of sales? Can I claim the difference between wholesale
> and retail ?
>
> Example: I sell pots/soaps/etc. on consignment and they retail for $10.
> I have to give the shop owner 30% *usually*, which means I only get $7 of
> the $10. Can I take the $3 as a loss or as any type of business
> deduction, or is that being too "craft"y (pardon the pun)?
>
> Lisa Skeen, Living Tree Pottery and Soaps
> http://www.uncg.edu/~lpskeen
Michael W Greenfield on sun 4 jan 98
The beauty of accounting is that all things must add up...
IMHO, I would use the "sale price" of $10.00 with the commission as a
cost of sale. This way you can show higher Gross Sales which looks good
on paper. If you only consider the $7.00 you receive, the commission is
already backed out and you cannot use it as an expense. In either case,
your profit will be the same. However your "Sales" on paper would be
higher using the commission paid as an expense.
Mike Greenfield
Lease Administrator
All our snow is melting in CNY
On Sat, 3 Jan 1998 11:19:14 EST Lisa P Skeen writes:
>----------------------------Original
>message----------------------------
>Dear Bonnie and whomever else might be able to answer this question:
>Can I claim the percentage paid to the gallery/consignment/shop as
>loss of income or cost of sales? Can I claim the difference between
>wholesale
>and retail ?
>Example: I sell pots/soaps/etc. on consignment and they retail for
>$10. I have to give the shop owner 30% *usually*, which means I only
>get $7 of the $10. Can I take the $3 as a loss or as any type of
>business
>deduction, or is that being too "craft"y (pardon the pun)?
>
>Lisa Skeen, Living Tree Pottery and Soaps
>http://www.uncg.edu/~lpskeen
JODO96 on sun 4 jan 98
the answer is no. Unless you take the full $10 as income first, you can't take
the difference between consignment and retail as a loss. Good luck!
D. Kim Lindaberry on mon 5 jan 98
Lisa P Skeen wrote:
>
> ----------------------------Original message----------------------------
> Can I claim the percentage paid to the gallery/consignment/shop as loss
> of income or cost of sales? Can I claim the difference between wholesale
> and retail ?
>
> Example: I sell pots/soaps/etc. on consignment and they retail for $10.
> I have to give the shop owner 30% *usually*, which means I only get $7 of
> the $10. Can I take the $3 as a loss or as any type of business
> deduction, or is that being too "craft"y (pardon the pun)?
Lisa,
I think that the simple answer is no. Since you should only be claiming
the $7 as actual income in the first place. You aren't claiming the $10
as income are you?. The shop doen't give you a check for $10 and then
expect you to give them back $3 does it? If that is what is happening
then the $3 would be a deduction, but if they are just giving you the $7
don't claim the $3 as a deduction. BTW, if for some reason the shop is
actually giving you the $10 (expecting a $3 payback get them to change
their policy.) You end up paying more self employment tax because of
that extra $3. Even if you get to claim it as a deduction you end up
paying out more to the government.
Any real tax authorities have some advice?
cheers
Kim
--
D. Kim Lindaberry
Johnson County Community College
12345 College Blvd.
ATB 115
Overland Park, KS 66210-1299
USA
to visit my web site go to: http://www.johnco.cc.ks.us/~klinda
to send e-mail to me use: mailto:klinda@johnco.cc.ks.us
Berry Silverman on mon 5 jan 98
------------------
Obvious disclaimer, it's best to check with an accountant. But it's
my=A0understanding that your only taxable income on the =2410 pot is the
=247 you were paid by the gallery. From that =247 income, you may deduct
expenses -- i.e. clay, glaze, firing expense. Of course, you have to
keep good records to prove your expenses in case the IRS asks. If you
sold that =2410 pot directly to a customer, then your income is =2410, minus
your expenses.
If you gave ware to a gallery and they absconded with your work and
never paid you, or if they paid you with a bad check that you never
collected on, then you would have a deduction for bad debt that you
could use to offset other income. But we all try and choose nicer
galleries than that.
Hope this helps.
Berry in Tucson where we are waiting for El Nino to pounce.
Olivia T Cavy on mon 5 jan 98
Lisa-
One other thought on including revenue on your business tax return. If
you are audited, one of the first things your IRS auditor will do is look
at your bank statements (and the equivalent, including savings account
statements and brokerage account statements) which you have been required
to provide, and add up all deposits to see that the total agrees with
what you have claimed as income on your tax return. You will already have
answered a series of questions relating to your having included ALL
income on your tax return, including barter transactions and presumably
represented that ALL income has been included on your return..
If the deposits are greater than your tax return revenue you will need to
explain. Sometimes the explanations are simple, such as birthday gifts of
cash (and you provide letters from the givers or photocopies of the
checks) or income tax refunds (and you provide last year's return) or
inheritance, etc. all of which are not taxable income. Usually the
auditor will accept any reasonable explanation backed up by some sort of
documentation as long as you come close.
But the big question is why would you set yourself up for potential
problems if you can avoid it? Most audits are done about 2 years after
the fact, so be sure to document in your business records AND your
checkbook the source of ALL deposits. Clearly it is better to keep a
separate business bank account or accounts, particularly if there are no
bank charges. Don't mix business deposits with non-business deposits on
the same deposit slip if you use only one account. Photocopy all checks
and deposit slips before depositing if at all possible. Label everything.
Save yourself a lot of grief later if you're audited. If you're not
audited you just have a great set of records which can provide you with
useful business information. (Do I sound like your CPA talking????)
Assuming that you have filed an honest tax return, in an audit you want
to be able to prove that you included all income as revenue. You want to
be believed. So look believable-- I mean make your records look
believable. Also make sure your tax return is prepared according to tax
code. Get your records organized early so you are not rushed.
Get a preparer who knows what he or she is doing in general and
specifically for your type of business. Try to get your return prepared
early in tax season because the preparer is less hassled. Second best is
to get a good computerized tax program. I've used Macintax since 1987,
which is now the same as Turbo tax and it's still good. It comes from
Intuit, the same people who bring you Quickbooks. It's not as good as
using a good preparer who spends all year keeping informed about taxes
and who has lots of experience in preparing returns, but their interview
forms are good. Expect to spend a lot of time to do your own return
(after spending a lot of time organizing your information). Turbotax and
Macintax have a lot of help information included with the program. The
IRS forms and instructions can be downloaded from the web from the US
Treasury web site.
And good luck.
Bonnie (CPA in Pennsylvania and Colorado)
Bonnie D. Hellman
Pittsburgh, PA
work email: oliviatcavy@juno.com
home email: mou10man@sgi.net
On Sun, 4 Jan 1998 21:14:02 EST "Jeremy M. Hellman"
writes:
>----------------------------Original
>message----------------------------
>Hello Lisa-
>
>In general you are only able to deduct expenses which you have paid or
>incurred, so if I sell an object (pot, soap, widget or whatever) and
>receive $10 in return I include the $10 in income. If I have to pay
>someone else $3 in charges (whether commission, fee, or other selling
>expense) I can deduct that $3.
>
>In other words, both will appear on my tax return (as part of
>hopefully
>larger numbers). The $10 is sales revenue, and the $3 is a commission
>or
>some other cost.
>
>If the shop owner receives the $10, keeps $3 and gives me $7, I may
>only
>include $7 in income on my tax return. However I'm at the same place
>as
>before- my net income is $7, which is the amount of money I received.
>
>If I only include $7 in income on my tax return and then claim $3 of
>expenses, my net is $4 and I am understating my income by the $3. Not
>allowed.
>
>What you need to remember is that since you undoubtedly have
>inventory,
>your business tax return will be on an accrual basis. This means that
>you
>will include in income, all money that you have earned (regardless of
>whether you received the cash) and you can deduct all expenses
>incurred,
>regardless of whether you actually paid for those expenses. However, a
>consignment sale is not sold inventory. You still own the pieces out
>on
>consignment.
>
>At year end you will need to know what revenue you need to recognize
>(your receivables or accounts receivable) and accrued expenses (bills
>for
>business expenses incurred in the previous year).
>
>Bonnie
>>----------------------------Original
>message----------------------------
>>Dear Bonnie and whomever else might be able to answer this question:
>>
>>Can I claim the percentage paid to the gallery/consignment/shop as
>loss
>>of income or cost of sales? Can I claim the difference between
>wholesale
>>and retail ?
>>
>>Example: I sell pots/soaps/etc. on consignment and they retail for
>$10.
>>I have to give the shop owner 30% *usually*, which means I only get
>$7 of
>>the $10. Can I take the $3 as a loss or as any type of business
>>deduction, or is that being too "craft"y (pardon the pun)?
>>
>>Lisa Skeen, Living Tree Pottery and Soaps
>>http://www.uncg.edu/~lpskeen
>
>
>"Outside a dog, a book is a man's best friend. Inside a dog, it's too
>dark to read" Groucho Marx
>
>" " Harpo Marx
>
>"Time flies like an arrow. Fruit flies like a banana" Att. to GM
>
John H. Rodgers on tue 6 jan 98
-- [ From: John H. Rodgers * EMC.Ver #2.5.02 ] --
I go along with John Weber on this. Take the full amount as gross income
first, then deduct the commission or cost of the sale as an expense. Either
way, reporting only a net $7.00 income on a $10 sale or $10 Gross sales less
$3.00 cost of sale results in the same thing --- $7.00 income.
However, when it comes to dealing with banks and other lending institutions
, it serves well to show all accrued income and expense. The gross sales in
your financial statement will show the bank what kind of volume you are
doing in terms of sales dollars. Of course, the bottom lines are going to be
net income and retained earnings.
Good Luck,
John Rodgers
It is pouring down rain in Alabama
-------- REPLY, Original message follows --------
Date: Sunday, 04-Jan-98 09:18 PM
From: John Weber \ America On-Line: (JODO96)
To: CLAYART LIST \ Internet: (clayart@lsv.uky.edu)
Subject: Re: Tax time question
----------------------------Original message----------------------------
the answer is no. Unless you take the full $10 as income first, you can't
take the difference between consignment and retail as a loss. Good luck!
-------- REPLY, End of original message --------
Olivia T Cavy on tue 6 jan 98
Berry-
One correction to your posting (included below). You could only deduct
the bad debt for that absconded (stolen) pot IF you had included that
money in income. Since most potters carry inventory, we are required by
tax code to keep our books on the accrual basis, meaning that we record
revenue when the sale is made (and possibly before we receive the money
for that sale) and we deduct expects as they are incurred (and possibly
before we actually pay for those expenses).
When you place your pots on consignment, you have not made a sale. You
have made a sale when you are notified that the pot has been sold. At the
time of placement on consignment, your financial books show nothing.
(However, your inventory location "books" should show where those pots
are.)
At the time of notification of sale, you record a receivable (accounts
receivable) and revenue on your financial books. (You would also note the
sale in your inventory location records.)
When you receive the cash, your financial books show an increase to cash
and a reduction to your accounts receivable.
In practice, many people keep track of their receivables off the books,
and keep basically a cash basis set of books that essentially mirrors
their bank statements. At the end of the year, accrual adjustments are
made by recording any receivables for which cash hasn't been received and
expenses not yet paid. (If similar previous year end adjustments had been
made, you would reverse those at some point during the current year.)
NSF (non sufficient funds) checks are recorded when you receive them,
and are reversed out, including any bank fees, when they bounce.
That's how it's supposed to be done.
Bonnie D. Hellman CPA in PA and CO
Pittsburgh, PA
work email: oliviatcavy@juno.com
msberry@webtv.ne
home email: mou10man@sgi.net
On Mon, 5 Jan 1998 10:36:02 EST Berry Silverman
writes:
>----------------------------Original
>message----------------------------
>------------------
>Obvious disclaimer, it's best to check with an accountant. But it's
>my=A0understanding that your only taxable income on the =2410 pot is
>the
>=247 you were paid by the gallery. From that =247 income, you may
>deduct
>expenses -- i.e. clay, glaze, firing expense. Of course, you have to
>keep good records to prove your expenses in case the IRS asks. If you
>sold that =2410 pot directly to a customer, then your income is =2410,
>minus
>your expenses.
>If you gave ware to a gallery and they absconded with your work and
>never paid you, or if they paid you with a bad check that you never
>collected on, then you would have a deduction for bad debt that you
>could use to offset other income. But we all try and choose nicer
>galleries than that.
>
>Hope this helps.
>Berry in Tucson where we are waiting for El Nino to pounce.
>
Mark Sweany on tue 6 jan 98
I'm no tax expert, but I have a little accounting and have
filed "Profit or Loss from Business" and Self-employment tax for
quite a few years. As a result, I'm not in jail, and I've never
even been audited, for whatever that's worth.
It looks to me like she could go either way without much
trouble. She owns the pot, it sold for $10. That is the value
of the pot she made. On the other hand the gallery owner
undoubtedly gave her a check for $7. That's what she actually
got for the pot.
If she shows the $10 in her gross, and deducts the $3 as a
cost, her net is going to be same as it would be if she showed
$7 in her gross with no offsetting cost for the sale. If I were
doing it, I would just show the $7, but that's because I'm lazy
and could save myself a bookkeeping entry. It would not effect
the amount that I had to pay taxes on in any way that I can see.
On the other hand, if I were thinking about selling the
business, or letting someone buy in as a partner, I might want
to bump my gross up as high as I could to make my business look
more attractive. Either way, it's just a bookkeeping matter.
The only way to hurt yourself here would be to show the $10 as
income and not deduct the $3 as a cost. Then you would be paying
someone else's taxes, which is definitely not a good business
practice.
----
Mark Sweany
m_pswean@primenet.com
(In Phoenix where the temp is 65 F. and the skies are a
wonderful shade of blue)
D. Kim Lindaberry wrote:
>
> I think that the simple answer is no. Since you should only be claiming
> the $7 as actual income in the first place. You aren't claiming the $10
> as income are you?. The shop doen't give you a check for $10 and then
> expect you to give them back $3 does it? If that is what is happening
> then the $3 would be a deduction, but if they are just giving you the $7
> don't claim the $3 as a deduction. BTW, if for some reason the shop is
> actually giving you the $10 (expecting a $3 payback get them to change
> their policy.) You end up paying more self employment tax because of
> that extra $3. Even if you get to claim it as a deduction you end up
> paying out more to the government.
>
> Any real tax authorities have some advice?
>
> cheers
>
> Kim
>
> --
> D. Kim Lindaberry
> Johnson County Community College
> 12345 College Blvd.
> ATB 115
> Overland Park, KS 66210-1299
> USA
>
> to visit my web site go to: http://www.johnco.cc.ks.us/~klinda
> to send e-mail to me use: mailto:klinda@johnco.cc.ks.us
David Hendley on tue 6 jan 98
Bonnie says, in the last paragraph below:
"Expect to spend a lot of time to do your own return."
Well, I certainly don't want to argue the intricacies of tax
returns with a CPA, but in my opinion, schedule C, the form
that folks like potters usually use for their business returns,
is as simple and straight forward as a tax form can be.
I can do mine in an hour or less.
If you have kept accurate and complete books all year, it takes
almost no time to transfer the information to schedule C.
Just enter your gross proceeds, and then subtract all your
expenses, according to the catagories set forth on the form.
Simple.
Even if things get a little more complicated, such as claming
depreciation for the 30% you use your computer for your business,
it's not hard. Just get the IRS instruction books for schedule C
and for depreciation. They'll tell you exactly how to do it.
(It's too late for 1997, since you didn't keep a log book
detailing your computer use, did you? Start one for 1998 now!)
Call or send off for all the IRS instruction books you think you
might need. Why bother downloaing them, they're free.
Do it this week.
The real key, as Bonnie says, is in the record keeping throughout
the year. 1998 is only 5 days old. Now's the time to make a resolution
to have complete and accurate records for 1998.
Enter any business transactions in your ledger the day of the transaction.
Keep a record of business travel, with exact times and locations.
Keep log books in your vechicles and by your computer and diligently use them.
Be as 'left brained' as you can be.
Small price to pay for all the fun you're having in your pottery studio.
David Hendley
Maydelle, Texas
OK, I admit it, I have a business degree and I do the accounting
for my little town's water system, but it's really not hard to do
a typical potter's business tax return.
At 10:54 AM 1/5/98 EST, you wrote:
>----------------------------Original message----------------------------
>Lisa-
>
>One other thought on including revenue on your business tax return. If
>you are audited, one of the first things your IRS auditor will do is look
>at your bank statements (and the equivalent, including savings account
>statements and brokerage account statements) which you have been required
>to provide, and add up all deposits to see that the total agrees with
>what you have claimed as income on your tax return. You will already have
>answered a series of questions relating to your having included ALL
>income on your tax return, including barter transactions and presumably
>represented that ALL income has been included on your return..
>
>If the deposits are greater than your tax return revenue you will need to
>explain. Sometimes the explanations are simple, such as birthday gifts of
>cash (and you provide letters from the givers or photocopies of the
>checks) or income tax refunds (and you provide last year's return) or
>inheritance, etc. all of which are not taxable income. Usually the
>auditor will accept any reasonable explanation backed up by some sort of
>documentation as long as you come close.
>
>But the big question is why would you set yourself up for potential
>problems if you can avoid it? Most audits are done about 2 years after
>the fact, so be sure to document in your business records AND your
>checkbook the source of ALL deposits. Clearly it is better to keep a
>separate business bank account or accounts, particularly if there are no
>bank charges. Don't mix business deposits with non-business deposits on
>the same deposit slip if you use only one account. Photocopy all checks
>and deposit slips before depositing if at all possible. Label everything.
>Save yourself a lot of grief later if you're audited. If you're not
>audited you just have a great set of records which can provide you with
>useful business information. (Do I sound like your CPA talking????)
>
>Assuming that you have filed an honest tax return, in an audit you want
>to be able to prove that you included all income as revenue. You want to
>be believed. So look believable-- I mean make your records look
>believable. Also make sure your tax return is prepared according to tax
>code. Get your records organized early so you are not rushed.
>
>Get a preparer who knows what he or she is doing in general and
>specifically for your type of business. Try to get your return prepared
>early in tax season because the preparer is less hassled. Second best is
>to get a good computerized tax program. I've used Macintax since 1987,
>which is now the same as Turbo tax and it's still good. It comes from
>Intuit, the same people who bring you Quickbooks. It's not as good as
>using a good preparer who spends all year keeping informed about taxes
>and who has lots of experience in preparing returns, but their interview
>forms are good. Expect to spend a lot of time to do your own return
>(after spending a lot of time organizing your information). Turbotax and
>Macintax have a lot of help information included with the program. The
>IRS forms and instructions can be downloaded from the web from the US
>Treasury web site.
>
>And good luck.
>
>Bonnie (CPA in Pennsylvania and Colorado)
>
>
>
>Bonnie D. Hellman
>Pittsburgh, PA
>work email: oliviatcavy@juno.com
>home email: mou10man@sgi.net
David Hendley
Maydelle, Texas
See David Hendley's Pottery Page at
http://www.sosis.com/hendley/david/
Olivia T Cavy on wed 7 jan 98
David,
Actually I can prepare a Schedule C quite quickly also, but I've also
done it before (many times over many years). Preparing a tax return is
not just finding a line on which to place your income and expenses.
Remember also that you are not just preparing a Schedule C. You may also
be preparing a Form 4562 for depreciation in the year that you put
depreciable equipment into service, and hopefully a Schedule SE to
compute your self-employment tax when you have net income. If you are
deducting expenses for a "home office" you are also preparing a Form
8829. And you are assuming a lot of knowledge about taxes that many
people don't have and don't want to take the time to learn (every year as
there are changes to the US tax code).
Can anyone learn to do his/her own tax returns? It's the same question
as, "Can anyone learn to throw pots on a wheel?" Sure, almost anyone can
learn. But some will learn more easily than others and do it better than
others. And some really don't want to know how. They just want to buy one
beautiful pot a year and consider it money well spent.
I still say that most people will be spending a lot of time if they
prepare their own Schedule C's and related forms. Some will have fun and
others won't. And some will do a better job than others. And sometimes
you won't know if you missed out on opportunities to minimize your income
and self-employment taxes.
And not having been audited gives you no special expertise. If you had
been audited that might count for something depending on how the audit
turned out. Glad you're not in jail though. ;-}
Bonnie Hellman, CPA in PA & CO
Pittsburgh, PA
work email: oliviatcavy@juno.com
home email: mou10man@sgi.net
On Tue, 6 Jan 1998 11:57:09 EST David Hendley
writes:
>----------------------------Original
>message----------------------------
>Bonnie says, in the last paragraph below:
>
>"Expect to spend a lot of time to do your own return."
>
>Well, I certainly don't want to argue the intricacies of tax
>returns with a CPA, but in my opinion, schedule C, the form
>that folks like potters usually use for their business returns,
>is as simple and straight forward as a tax form can be.
>I can do mine in an hour or less.
>
>If you have kept accurate and complete books all year, it takes
>almost no time to transfer the information to schedule C.
>Just enter your gross proceeds, and then subtract all your
>expenses, according to the catagories set forth on the form.
>Simple.
>Even if things get a little more complicated, such as claming
>depreciation for the 30% you use your computer for your business,
>it's not hard. Just get the IRS instruction books for schedule C
>and for depreciation. They'll tell you exactly how to do it.
>(It's too late for 1997, since you didn't keep a log book
>detailing your computer use, did you? Start one for 1998 now!)
>Call or send off for all the IRS instruction books you think you
>might need. Why bother downloaing them, they're free.
>Do it this week.
>
>The real key, as Bonnie says, is in the record keeping throughout
>the year. 1998 is only 5 days old. Now's the time to make a resolution
>to have complete and accurate records for 1998.
>Enter any business transactions in your ledger the day of the
>transaction.
>Keep a record of business travel, with exact times and locations.
>Keep log books in your vechicles and by your computer and diligently
>use them.
>
>Be as 'left brained' as you can be.
>Small price to pay for all the fun you're having in your pottery
>studio.
>
>David Hendley
>Maydelle, Texas
>OK, I admit it, I have a business degree and I do the accounting
>for my little town's water system, but it's really not hard to do
>a typical potter's business tax return.
>
>
>At 10:54 AM 1/5/98 EST, you wrote:
>>----------------------------Original
>message----------------------------
>>Lisa-
>>
>>One other thought on including revenue on your business tax return.
>If
>>you are audited, one of the first things your IRS auditor will do is
>look
>>at your bank statements (and the equivalent, including savings
>account
>>statements and brokerage account statements) which you have been
>required
>>to provide, and add up all deposits to see that the total agrees with
>>what you have claimed as income on your tax return. You will already
>have
>>answered a series of questions relating to your having included ALL
>>income on your tax return, including barter transactions and
>presumably
>>represented that ALL income has been included on your return..
>>
>>If the deposits are greater than your tax return revenue you will
>need to
>>explain. Sometimes the explanations are simple, such as birthday
>gifts of
>>cash (and you provide letters from the givers or photocopies of the
>>checks) or income tax refunds (and you provide last year's return) or
>>inheritance, etc. all of which are not taxable income. Usually the
>>auditor will accept any reasonable explanation backed up by some sort
>of
>>documentation as long as you come close.
>>
>>But the big question is why would you set yourself up for potential
>>problems if you can avoid it? Most audits are done about 2 years
>after
>>the fact, so be sure to document in your business records AND your
>>checkbook the source of ALL deposits. Clearly it is better to keep a
>>separate business bank account or accounts, particularly if there are
>no
>>bank charges. Don't mix business deposits with non-business deposits
>on
>>the same deposit slip if you use only one account. Photocopy all
>checks
>>and deposit slips before depositing if at all possible. Label
>everything.
>>Save yourself a lot of grief later if you're audited. If you're not
>>audited you just have a great set of records which can provide you
>with
>>useful business information. (Do I sound like your CPA talking????)
>>
>>Assuming that you have filed an honest tax return, in an audit you
>want
>>to be able to prove that you included all income as revenue. You want
>to
>>be believed. So look believable-- I mean make your records look
>>believable. Also make sure your tax return is prepared according to
>tax
>>code. Get your records organized early so you are not rushed.
>>
>>Get a preparer who knows what he or she is doing in general and
>>specifically for your type of business. Try to get your return
>prepared
>>early in tax season because the preparer is less hassled. Second best
>is
>>to get a good computerized tax program. I've used Macintax since
>1987,
>>which is now the same as Turbo tax and it's still good. It comes from
>>Intuit, the same people who bring you Quickbooks. It's not as good as
>>using a good preparer who spends all year keeping informed about
>taxes
>>and who has lots of experience in preparing returns, but their
>interview
>>forms are good. Expect to spend a lot of time to do your own return
>>(after spending a lot of time organizing your information). Turbotax
>and
>>Macintax have a lot of help information included with the program.
>The
>>IRS forms and instructions can be downloaded from the web from the US
>>Treasury web site.
>>
>>And good luck.
>>
>>Bonnie (CPA in Pennsylvania and Colorado)
>>
>>
>>
>>Bonnie D. Hellman
>>Pittsburgh, PA
>>work email: oliviatcavy@juno.com
>>home email: mou10man@sgi.net
>
>David Hendley
>Maydelle, Texas
>See David Hendley's Pottery Page at
>http://www.sosis.com/hendley/david/
>
KLeSueur on wed 7 jan 98
In a message dated 1/6/98 5:07:11 PM, you wrote:
<returns with a CPA, but in my opinion, schedule C, the form
that folks like potters usually use for their business returns,
is as simple and straight forward as a tax form can be.
I can do mine in an hour or less.
>>
This system works well until that horrible day when a letter comes informing
you that in just two weeks you are to appear at the IRS, records in hand, for
an audit. I've been through it and I can tell everyone that there's nothing to
calm the heart more than to say to the auditor, "My tax preparer is authorized
to answer all questions." Then just sit there with your mouth shut. It is
absolutely amazing what items will be disputed by an auditor. "Why do you need
help at a fair?" It is absolutely amazing what the auditors don't know. "You
can only deduct $.13 per mile." Having a certified tax preparer sitting across
from the auditor can save lots of money.
There are two other bits of advice I can give that may help people avoid an
audit. First, if at all possible set up a partnership rather than sole
proprietor. If you are married set up a partnership with your spouse. Your
chances of being audited will drop significantly and if you are audited the
person doing the audit will be accustom to looking at business returns rather
than individual returns.
Second, if at all possible, have the studio pay rent for the space. In my case
the studio is in a separate building. The property is in my name and the
partnership rents it from me. As a result, the rent is not subject to self-
employment tax. Consider, if the rent is $750 a month, that's $9000 a year
not subject to the 15% self-employment tax. $1350. That $9000 then becomes
"investment" income for me and is taxed at a lower rate.
Another way to do it is to form a partnership with your spouse to buy the
property the studio sits on. Then rent the property to yourself as a sole
proprietor.
The main advantage to this is that it eliminates all questions about the home
office deduction. You are renting the property for your business use.
It may be complicated, but if you ever have to sit in that IRS offfice, you'll
be glad you did it.
Kathi LeSueur (who has sat in that IRS office)
Linda Blossom on fri 9 jan 98
I was just wondering what Bonnie and other cpa's and accountants had to say
about this idea of a partnership with the spouse?
Linda Blossom
2366 Slaterville Rd.
Ithaca, NY 14850
6075397912
www.artscape.com
blossom@lightlink.com
-----Original Message-----
From: KLeSueur
To: Multiple recipients of list CLAYART
Date: Wednesday, January 07, 1998 12:41 PM
Subject: Re: Tax time question
>----------------------------Original message----------------------------
>
>In a message dated 1/6/98 5:07:11 PM, you wrote:
>
><>returns with a CPA, but in my opinion, schedule C, the form
>that folks like potters usually use for their business returns,
>is as simple and straight forward as a tax form can be.
>I can do mine in an hour or less.
>>>
>
>This system works well until that horrible day when a letter comes
informing
>you that in just two weeks you are to appear at the IRS, records in hand,
for
>an audit. I've been through it and I can tell everyone that there's nothing
to
>calm the heart more than to say to the auditor, "My tax preparer is
authorized
>to answer all questions." Then just sit there with your mouth shut. It is
>absolutely amazing what items will be disputed by an auditor. "Why do you
need
>help at a fair?" It is absolutely amazing what the auditors don't know.
"You
>can only deduct $.13 per mile." Having a certified tax preparer sitting
across
>from the auditor can save lots of money.
>
>There are two other bits of advice I can give that may help people avoid an
>audit. First, if at all possible set up a partnership rather than sole
>proprietor. If you are married set up a partnership with your spouse. Your
>chances of being audited will drop significantly and if you are audited the
>person doing the audit will be accustom to looking at business returns
rather
>than individual returns.
>
>Second, if at all possible, have the studio pay rent for the space. In my
case
>the studio is in a separate building. The property is in my name and the
>partnership rents it from me. As a result, the rent is not subject to self-
>employment tax. Consider, if the rent is $750 a month, that's $9000 a year
>not subject to the 15% self-employment tax. $1350. That $9000 then
becomes
>"investment" income for me and is taxed at a lower rate.
>
>Another way to do it is to form a partnership with your spouse to buy the
>property the studio sits on. Then rent the property to yourself as a sole
>proprietor.
>
>The main advantage to this is that it eliminates all questions about the
home
>office deduction. You are renting the property for your business use.
>
>It may be complicated, but if you ever have to sit in that IRS offfice,
you'll
>be glad you did it.
>
>Kathi LeSueur (who has sat in that IRS office)
>
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